Does globalization make the U.S. more economically and militarily secure?

¶ … GLOBALIZATION MAKE the U.S. MORE SECURE ECONOMICALLY and MILITARILY?

The objective of this work is to answer the question of whether globalization makes the U.S. more secure economically and militarily and why or why not? This work will define globalization in its original and realistic sense and then defend why the proposed security effect is stated as answer to the original question in this study.

The work of Bates and Lu entitled: "Program on the Geopolitical Implications of Globalization and Transnational Security" a GCSP Policy Brief Series (2006) states that globalization "is a double-edged sword." (p.2) This is especially true it appears in view of the United States and its military and economic security.

GLOBALIZATION - WHAT IS it REALLY?

The Department of Defense (DOD) DSB Task Force on Globalization and Security states that 'Globalization' is: "...the integration of the political, economic, and cultural activities of geographically and/or nationally separated peoples..." (, p.1) Additionally the taskforce relates that 'Globalization' is "not a policy option, but a fact to which policymakers must adapt." (p.1) the work of Guay (2007) entitled: "Globalization and Its Implications for the Defense Industrial Base" states that globalization "...is perhaps the most popular term used to describe changes in the international environment since the end of the Cold War. Unfortunately, the term now is used so frequently that it has come to mean different things to different people. This lack of a precise definition of a term with wide currency can make it difficult to discuss globalization's effects in a coherent way." (Guay, 2007, p. 1) Guay states that the definition suggested by the International Monetary Fund as a good working definition of globalization is: "..."the growing economic interdependence of countries world-wide through the increasing volume and variety of crossborder transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology." (Guay, 2007, p. 1) Guay adds: "This combination of forces will present challenges, risks, and opportunities to virtually every industry in every country for the foreseeable future."

II. GLOBALIZATION and the IMPACT to DOD

It is related in the DOD - DSB Task Force on Globalization and Security report that globalization affects DOD in "...two distinct, if overlapping ways. First, it is altering fundamentally -- the composition of DOD'S supporting industrial base while, in turn, necessitating a reengineering of DOD acquisition and business 'practices. Second, and perhaps more significantly, it is reshaping the military-technological. environment in which -- DOD must compete. These twin trends present DOD with both opportunities and challenges to the maintenance of global military dominance." (p. 1) the report relates further that DOD at one time, was dependent on and was able to financially sustain."..a dedicated industrial base for development, production and provision of its equipment and services." (p. 1) Presently, DOD is supported "by a broader, less defense intensive industrial base that is becoming increasingly international in character." (p.1) it is reported that this is due to four factors:

1) Deep cuts in U.S. defense investment in the Cold War's wake (procurement and R&D are down 70% and 25% in real terms, respectively, since the late-1980s), 2) an explosion in commercial sector high-tech R&D investment and technological advancement, 3) a sustained DOD acquisition reform effort; and 4) a shift in procurement emphasis from weapons and platforms, per se, to the sophisticated information technologies so amplifying their capabilities." (p.1)

In the work entitled: "Research Paper Reconciles Globalization Risks, Opportunities for U.S. Defense Industry" it is stated that "Globalization is causing change in nearly every industry in the U.S. economy, but for the defense industrial base, the potential for international growth must be tempered with the need to protect critical defense technologies and U.S. national and economic security." (2007, p.1) Recommendations stated in the report for the Department of Defense include those as follows:

DOD officials should consider stipulating that the 30 largest defense contractors must submit an annual report describing the extent of their international production and R&D, including their leading suppliers;

The executive and legislative branches of government should make the approval process for foreign acquisitions more transparent;

The Defense Department should take a proactive stance in terms of investment in the United States by foreign defense companies;

The DOD should give preference to foreign companies with U.S.-based production when awarding contracts;

The DOD should be judicious in restricting technology transfer;

U.S defense companies should diversify into nondefense sectors;

Federal, state, and local governments should improve math and science education;

The federal government and U.S. universities should rebalance security concerns with economic competitiveness in areas of scientific research;

The federal government and defense companies should ease restrictions on foreign high-skilled workers;

The federal government and defense companies should work with global institutions to harness the benefits of globalization. (DOD - DSB Taskforce, 2007)

IV. ECONOMIC ASPECTS of GLOBALIZATION

According to Guay the "economic dimension of globalization perhaps is symbolized best by the expansion of production, investment, and sales by multinational corporations into other countries." (2007, p.3) Guay states that the United States was in domination of the global defense industry and this remains true however, progress has been most recently noted and specifically in the country of Russia among others that have advanced in recent years in their military capability. The following chart shows these statistics and figures are in U.S.$ million at constant 2003 prices, and exchange rates are for calendar year.

Military Defense Spending and Rankings by Country

Source: Guay (2007)

The following figure lists the top eleven suppliers of major conventional weapons from 2001 to 2005 in international arms sales.

International Arms Sales: Ranked by Top Eleven Suppliers of Major Conventional Weapons (2001-2005)

Source: Guay (2007)

The following table lists the 'cumulative FDI inflows for eleven OECD member countries for the period 1996-2005 and 2002-2005. Clearly, the FDI inflows for the period 2002-2005 are greatly reduced as compared to the FDI inflows for the period 1996-2005.

Figures are stated in U.S.$ billion

Source: Guay (0207) p. 23

Guay relates that the globalization of capital has contributed to the growth in cross-border mergers and acquisitions (M&a) in nearly every sector, including defense. In many OECD countries they account for more than half of the total FDI." (p.24) in the mergers and acquisitions that have been witnessed the M&as of the defense industry have "followed a distinct pattern. The first phase consisted of regional mergers that led to formation of large companies in the defense aerospace and electronics sectors. The second phase appears to be unfolding in two ways: consolidation in the land armaments and naval sectors, as well as large firms buying smaller ones on the opposite side of the Atlantic Ocean." (p. 27) a great deal of country protectionism exists in foreign direct investment (FDI) and this is especially true in the defense industry. Guay states that in this "era of ever-increasing cross-border deals, the issue of whether national security will be adversely affected by the acquisition of U.S. assets will become more prominent." (p. 31)

V. PRIVATIZATION

Privatization has also been a trend of globalization in a process that results in assets that were "formerly held by governments" becoming privately owned and this has affected the defense industry as well. Difficulties noted include the case of India in the "opportunities and challenges" it presented for U.S. defense companies in 2006 when a private sector Indian company was appointed prime contractor for rocket launchers. Prior to this time the work of defense integration had been performed by either corporations of the government tor suppliers from overseas resulting in approximately seventy-percent of the defense capital budget spent across its borders due to public sector limitations and since FDI in defense companies that were private was disallowed until 2002. Guay relates that the approximate amount of $365 billion spent fighting the Iraq war and terrorism has been spent with private contractors for services. Guay states: "Controversially, oversight safeguards were lifted prior to the Iraq war, including the Department of Defense's (DOD) ability to circumvent competitive bidding rules in emergency situations. Consequently, sole-source and other non-competitive contracts awarded by the Pentagon have increased 54% since 2000, from $65 billion to $100 billion." (p. 33)

While privatization is described by Guay as "liberalizing' he also stated that the effects noted throughout the world are mixed in nature. Fraud and waste are stated to be "prevalent, including a finding by defense Department auditors that Kellogg, Brown & Root (a Halliburton subsidiary) had billed the government $1.2 billion for questionable charges, a Congressional Budget Office study suggests that outsourcing is still a net benefit for the Pentagon." (p. 33) Guay relates that product supply chains represent multiple countries integration with the globalization of production being "in part, a response by firms to lower costs in an increasingly competitive marketplace. Host countries see many opportunities from attracting FDI and the increasing 'statelessness of multinational corporations makes production in a variety of countries a necessary strategy." (p. 40) a key component of globalization according to Guay is "the promotion of international trade by reducing tariffs and other national barriers." (2007. p. 46) Guay also states that a consequence of "increased international trade is a corresponding increase in demand for commodities." (2007, p. 46) Guay writes that companies that are producers for civilian and military markets "are susceptible to increased global competition on the civilian side, even as the military side of their business may be fairly protected." (2007, p. 46) These firms may be forced to restructure which means restructuring as well as "selling divisions, reducing workforces, or ultimately going out of business - which could seriously affect the defense industrial base." (Guay, 2007, p. 46)

DISCUSSION

This research study has sought to answer the question of whether U.S. security has been enhanced or if U.S. security has declined both economically and militarily due to the effects of globalization. As noted in this study, the Department of Defense (DOD) defines globalization as "the integration of political, economic and cultural activities of geographically and/or nationally separated peoples..." Furthermore, globalization cannot be viewed as an option of policy but instead it is simply a given that must be adapted to by policymakers. Globalization's affect to defense is in two primary ways that overlap one another. The first of these is the composition of DOD's supporting industrial base being altered in a fundamental manner requiring that DOD reengineer its business and acquisition practices and secondly, globalization has resulted in the competitive environment both militarily and technologically to be reshaped. No longer is the industrial base of DOD one that is of the nature of a dedicated industrial base for developing, producing and providing services and equipments and this is because of large defense cuts since the late 1980s, an expansion in commercial sector high-tech R&D investment and technological advancement, a sustained acquisition reform effort on the part of DOD and a transition in emphasis on the procurement of weapons and platforms to information technology that is more sophisticated and that amplifies capabilities.

Opening up of international trade and the trade agreements which have ensued has resulted in the United States having a trade deficit and furthermore, FDI for the United States has fallen in recent years. Privatization has also resulted from globalization and this has resulted in assets that the governments of countries formerly held in their possession becoming owned by private investors and this includes the defense industry. This has resulted in fraud and waste and due to oversight safeguards being lifted, the problem has become exacerbated during the Iraq war.

This study has also noted that the integration of political, social and cultural activities and values result in economic risks both at the micro and macro levels. Micro-level economic risks include 'inevitable short-term dislocations, as resources and capital move across borders to seek out comparative advantages..." (Juster, 2004) including cheaper labor and lower raw material costs. Macro-level risks are due to the increasingly volatility of investment across borders and the increasingly ease of injecting and withdrawing capital from different markets. Additionally, one financial market experiencing a downturn can immediately result in affects worldwide because the markets are so very interconnected and interdependent due to the affects of globalization. Export controls however, that are effective may potentially reduce the possibility that some act of terrorism might completely disrupt the critical infrastructures of the United States and result in consumer confidence dropping and the economy going into a spin. Effective export controls assure that destabilization of markets does not occur due to arms races on a regional basis or due to WMD proliferation.

CONCLUSION

This study has clearly demonstrated that the economic and military security of the United States has been greatly reduced due to the affects of globalization and that national security is no longer limited narrowly to considerations of national defense and the preparedness of the military and instead national security must also take into consideration international conditions of security necessary in preservation and enhancement of economic prosperity in the U.S. In a manner that serves to enhance free trade. Globalization has challenges and promises for the United States however, it is important that the interconnectedness of the various markets be first comprehended and then allowed for in strategy and national security agendas.